Scope Ratings, a leading European credit rating agency, has announced that it has placed the United States of America’s AA long-term issuer and senior unsecured debt ratings in local and foreign currency under review for possible downgrade. The rating agency has cited longer-term risks associated with the misuse of the debt ceiling instrument, recurrent debt-ceiling crises leading to debt repayment distress for the U.S government, political polarization, divided government since the November 2022 congressional elections, and more elevated federal deficits over the forthcoming years as reasons for the ratings review.
The U.S. government hit its $31.4 trillion borrowing limit in January, and if Congress does not raise the debt ceiling, the United States could run out of money to pay its bills as soon as June 1, according to Treasury Secretary Janet Yellen. The Republican-led U.S. House of Representatives passed a bill last week that pairs $4.8 trillion of spending cuts with an increase in the ceiling. However, President Joe Biden and his fellow Democrats insist Congress should raise the cap without conditions.
Scope Ratings has also placed United States’ S-1+ short-term issuer ratings in local and foreign currency under review for a possible downgrade. Moody’s and Fitch both have a triple-A rating for the United States, the highest credit quality status they can assign to a borrower. S&P Global’s sovereign rating for the United States is ‘AA+’, the second-highest rating by the agency. In its published report from March last, S&P expected Congress to continue to raise or suspend the debt ceiling, despite “political brinkmanship” between the executive and legislative branches of government.
Scope Ratings is in talks with the European Central Bank to become one of its recognized agencies, joining Standard and Poor’s, Moody’s, Fitch, and DBRS.